Demonetisation a Massive, Draconian, Monetary Shock: Ex-chief Economic Advisor Arvind Subramanian
New Delhi, Nov 29: Demonetisation was a massive, draconian, monetary shock that accelerated economic slide to 6.8 per cent in the seven quarters after it against the 8 per cent recorded prior to the note ban, says former Chief Economic Advisor Arvind Subramanian.
Breaking his silence on the November 8, 2016 decision of Prime Minister Narendra Modi, he says that he does not have a strongly-backed empirical view apart from the fact that the welfare costs, especially on the informal sector, were substantial.
Though Subramanian, who quit the post earlier this year after a four-year tenure, has devoted a chapter in the upcoming book "Of Counsel: The Challenges of the Modi-Jaitley Economy", published by Penguin, has continued to keep a studied silence on whether he was consulted in the decision-making process of demonetisation. The detractors of the government had said that the Prime Minister had not consulted the CEA on the crucial decision.
"Demonetisation was a massive, draconian, monetary shock: In one fell swoop, 86 per cent of the currency in circulation was withdrawn. The real GDP growth was affected by the demonetisation. Growth had been slowing even before, but after demonetisation, the slide accelerated."
"In the six quarters before demonetisation, growth averaged 8 per cent and in the seven quarters after, it averaged about 6.8 per cent (with a four quarter window, the relevant numbers are 8.1 per cent before and 6.2 per cent after)," Subramanian says in the chapter "The Two Puzzles of Demonetisation - Political and Economic".
The former CEA says he does not think anyone disputes that demonetisation slowed growth. Rather, the debate has been about the size of the effect - whether it was 2 per cent points, or much less. "After all, many other factors affected growth in this period, especially higher real interest rates, GST implementation and oil prices."
"But when a shock like demonetisation occurs, that primarily affects the informal sector, relying on formal indicators to measure overall activity will overstate GDP. This hypothesis goes only a small way towards explaining the puzzle since any squeeze in informal sector incomes would depress demand in the formal sector, and this effect should have been sizable.
Searching for other explanations, Subramanian says one possibility was that people found ways around the note ban with the possibility that the production was sustained by extending informal credit.
Finally, to a certain extent, people may have shifted from using cash to paying by electronic means such as debit cards and electronic wallets.
"Or, there may be other, completely different explanations that have eluded my understanding of demonetisation, one of the unlikeliest economic experiments in modern Indian history," he says.
From the political aspect, the former CEA says that demonetisation was an unprecedented move that no country in recent history had made in normal times. The typical pattern had been either gradual demonetisation in normal times or sudden demonetisation in extreme circumstances of war, hyperinflation, currency crises or political turmoil (Venezuela in 2016).
According to him, the Indian initiative was, to put it mildly, unique. Referring to the BJP's victory in Uttar Pradesh assembly elections, shortly after demonetisation, he says it was widely seen as a verdict on the note ban.
One answer to the demonetisation puzzle has been that the poor were willing to overlook their own hardships, knowing that the rich and their ill-begotten wealth were experiencing even greater hardship: 'I lost a goat, but they lost their cows', he says. In this view, the costs to the poor were unavoidable collateral damage that had to be incurred for attaining a larger goal.
Subramanian says this is not entirely convincing. After all, the collateral damage was, in fact, avoidable.
"Understanding the political economy of demonetisation may require us, therefore, to confront one overlooked possibility - that adversely impacting the many, far from being a bug, could perhaps have been a feature of the policy action.
"Not necessarily by design or in real time, but in retrospect, it appears that impacting the many adversely may have been intrinsic to the success of the policy," he says.
Courtesy: www.news18.com
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Another North Goa nightclub sealed; Kejriwal says corruption led to fire tragedy
Panaji (PTI): As part of a crackdown against tourist establishments violating laws and safety norms in the aftermath of the Arpora fire tragedy, Goa authorities on Saturday sealed a renowned club at Vagator and revoked the fire department NOC of another club.
Cafe CO2 Goa, located on a cliff overlooking the Arabian Sea at Vagator beach in North Goa, was sealed. The move came two days after Goya Club, also in Vagator, was shut down for alleged violations of rules.
Elsewhere, campaigning for local body polls, AAP leader Arvind Kejriwal said the fire incident at Birch by Romeo Lane nightclub at Arpora, which claimed 25 lives on December 6, happened because the BJP government in the state was corrupt.
An inspection of Cafe CO2 Goa by a state government-appointed team revealed that the establishment, with a seating capacity of 250, did not possess a no-objection certificate (NOC) of the Fire and Emergency Services Department. The club, which sits atop Ozrant Cliff, also did not have structural stability, the team found.
The Fire and Emergency Services on Saturday also revoked the NOC issued to Diaz Pool Club and Bar at Anjuna as the fire extinguishers installed in the establishment were found to be inadequate, said divisional fire officer Shripad Gawas.
A notice was issued to Nitin Wadhwa, the partner of the club, he said in the order.
Campaigning at Chimbel village near Panaji in support of his party's Zilla Panchayat election candidate, Aam Aadmi Party leader Kejriwal said the nightclub fire at Arpora happened because of the "corruption of the Pramod Sawant-led state government."
"Why this fire incident happened? I read in the newspapers that the nightclub had no occupancy certificate, no building licence, no excise licence, no construction licence or trade licence. The entire club was illegal but still it was going on," he said.
"How could it go on? Couldn't Pramod Sawant or anyone else see it? I was told that hafta (bribe) was being paid," the former Delhi chief minister said.
A person can not work without bribing officials in the coastal state, Kejriwal said, alleging that officers, MLAs and even ministers are accepting bribes.
